Costs Are Costs Are Costs, Mr. Sestak

October 25, 2010

It is time for a lesson in Economics 101 for people that either never bothered to learn the basics. There are also those who refuse delivery of the facts because they hate businesses and corporations so much that it eats away at their innards like acid causing them to attack these entities. They will also benefit from reading this article if they can stomach it long enough to make it through to the end.

Not a day goes by that I do not get an ignorant email from an uninformed basher of corporate America bemoaning the cost of this or that and whining about candidates like Pat Toomey (R-PA) running for Senate and who are actually talking intelligently about how businesses should not be taxed.

Joe Sestak (D-PA) who, frighteningly, is currently a U.S. Representative from the Commonwealth and now running for Senate against Mr. Toomey has even attempted to drum up this issue as a reason not to vote for his opponent. Sadly, there are going to be a lot of souls out there who hear this mindless attack and immediately decide that Toomey is in the pocket of the vile, rich business owners and against the hard working middle class. Make no mistake. This as it is exactly what Mr. Sestak is hoping for.

But, as I have written before, Joe Sestak, and other liberals, make this attack out of an ignorance of the truth.

Ask yourself this question: How do businesses stay in business?

The answer: They make enough money to cover their costs and enough extra to make it worth the while of the owner to get up every day and keep the doors open. This costs plus profits requirement is what keeps a business going and paying its employees rather than shuttering its doors and laying off those that rely on it for a paycheck.

The costs a business must endure are many. They range from the cost to build a facility, to finance the loans required to startup and operate, to pay for raw materials, to pay employees their respective wages, to pay utility costs, and on and on and on. What most people forget about however is that taxes levied by government, at all levels, also are included in these costs.

I know some people disagree with this economic truth. But they disagree because more often than not they are the ones levying these taxes and accepting them as costs that businesses wrap up into the final prices of their goods and services makes us peons start to ask dangerous questions. Questions like why are our elected representatives increasing the costs of everything we buy in order to grow government? Questions like how much more could we afford and save if these taxes were not in place?

It is simple to prove that taxes are costs which must be accounted for. Let’s look at the ever popular, ever in demand and ever ambiguous widget to prove this point.

To make a widget a company, call it Allied Widget, is saddled with costs to cover the monthly loan they took out to build their plant ($10), to pay for the raw materials of the product ($15), to pay for the energy required to stamp out the widget ($5), to pay for shipping the widget to the store where is can be bought ($5), to pay for advertising so that people know that widgets are available and where to buy them ($5) and also to pay the worker that made the widget for sale ($10). Now, what has our widget cost thus far? Well, based on these sample numbers it has cost $50.

But the owner of the company has not made a dime yet. In order to justify getting up every morning and leaving his wife and three kids at home, pay for food to put on his table and so on he too must make some money. He puts 10% on top of that $50 so he can get $5 out of the widget for himself. Now that widget costs $55 as a manufacturers suggested retail price (MSRP).

This is where people like Joe Sestak want you to believe that the costs Allied Widget incurs end. But the fact is that Allied Widget also has to pay taxes. The company also has to pay its share of payroll taxes for its workers. It has to pay all sorts of fees to local and State governments as well. You know how much that costs the company and which has not been included above? What does it cost exactly? Well, that depends on what industry one is in and even what State of the Union Allied Widget resides in since all States have different tax structures. In depth studies have shown that this cost of government taxation is about 22-23%.

That $50 widget, when taxes are included, now costs Allied Widget a little more. Let’s say for the sake of argument and simplicity that Allied Widget is taxed at a rate of 10% as a business. Now that widget cost $55.

But we have an obvious problem for the owner now don’t we? Without considering the cost of taxes he was going to sell his widgets for $55 each to make the $5 he needs per widget to make running Allied Widget worth his time. But he cannot make that $5 now unless he raises his price to $60 each.

Whoa! What just happened there? Why the price we, the consumers, pay per widget just went up. And it went up only because of taxes levied on Allied Widget by government. And we have not even accounted for other costs imposed on the business by government which includes permitting fees, cost of compliance with regulations, etc. Those would have to be included too in any final analysis and would only raise this cost per widget even higher.

So let us return to liberals like Joe Sestak and his attacks on Pat Toomey. Sestak attacks Toomey for suggesting that corporations and businesses should not be taxed and then Sestak claims that he is for the working folks of our Commonwealth. But look at what Toomey is suggesting here and beyond the visceral reaction the left wants you to have because for years they have vilified business, our employers, with slanders. What Toomey is actually saying is that he wants to reduce the costs businesses incur making the products we as consumers desire. And by reducing those costs and eliminating those taxes on business the price to produce those goods and services actually declines. When the price to produce goods and services declines it also puts downward pressure on the prices we as consumers pay. We save more and can buy more when this happens. Our wealth grows and when we buy more, more jobs are required to meet demand.

Joe Sestak, like all liberals who want to tax business up the wazoo, claims to be for the middle class. But how does inflating the costs of everything we, the middle class, buy actually help us out? Don’t ask Joe Sestak because he doesn’t have the answers to that.

The facts are Mr. Sestak and his liberal buddies just use taxes on corporations as a way to collect taxes on us, the people. Because those taxes are costs that are wrapped up in the final price of everything we buy. Sestak and his ilk have turned corporations into tax collectors for them. It might be politically incorrect to say. But it is the truth.